Shipping Costs Falling, But Still at a High Level
The final days of peak season and an abundance of containers have reduced freight costs.
The cost of transporting goods to China has been trending downward since August when it reached its peak. Although freight indexes suggest an increase in the rate, they will not fall to levels comparable to those of 2009.
The China Containerized Freight Index hit an all-time peak of 1214.7 in August. 27, but it slid slowly after that, dropping to 1202.59 in September. 3. At the time of October. 22 the index had risen to 1132.08. Yet, the CCFI remains 18 percent better year-over the year.
The Howe Robinson Container Index shows the same trend. The HRCI was close to 750 in the middle of September, which is up by 120 percent from 340 prior years. Rates have been declining since then, however, not as rapidly as those at the CCFI. In October. 20th, the HRCI was 704.40. It was lower by 22.90 points from last week but still over 100 percent higher year over year.
In the peak season for shipping closing, container demand is likely to ease off throughout the remainder season. October is typically the most popular month for shipping, where orders in the holidays are dispatched. The lack of container space at the beginning of the year led some buyers to request earlier delivery dates in order to prevent delays.
Although projections indicate an ongoing drop-in shipping price until December, the cost is not expected to drop in the same way as it did in 2009.
Richard Li, the transport sector researcher at Guojin Securities, said excess capacity is another factor in the decline in rates. Container companies put more liners to the market for the season of peak shipping. As demand for liners has decreased, this oversupply likely to lower costs.
Liu Bin, a professor at the World Economic Research Institute of Dalian Maritime University, stated that projections for shipping prices are based on the price of oil, international trade, demand, and supply. For China, the last one is the most critical aspect.
Li is in agreement. In the current quarter, Li stated that the most likely scenario for container firms is for prices to fall to breakeven levels that are around $2,000 for TEUs on the US or European routes. The analyst also believes that liners will likely reduce capacity prior to prices reaching this level, thereby slowing the rate of decline. However, if sales for retail during the Christmas period are not as good and inventories are still high, shipping costs during the beginning of 2011 could be at a moderate level.
There is no reason to be concerned.
Costs of shipping have been largely unaffected by China’s exporters. Buyers typically pay these costs; therefore, any fluctuation in the rates of containers does not affect the pricing plans of suppliers or the bottom line. Liang Zhibin, a shipping broker who is based within Shenzhen, Guangdong province, claimed that 70 to 80 percent of contracts are paid for by importers.
Shenzhen YLI Electric Locking Equipment Co. Ltd doesn’t believe that its customers will be deterred from the expense of shipping, regardless of whether they are required to pay the costs. The company says that buyers typically consider these costs when negotiating with suppliers and are not likely to cut down on orders due to shipping costs on their own. This is particularly true since shipping costs make up just a tiny portion of the budget of a customer.
However, according to Richforth Ltd Richforth Ltd, high shipping costs make it harder to negotiate FOB rates with buyers.
Exporters who have to take on shipping costs are not significantly affected. Amanda Wang, a foreign trade merchandiser, working for a PV-based company located in Ningbo, Zhejiang province, explained that the majority of contracts stipulate that shipping costs are on the buyers’ side. Specific clients need the factory to cover the cost. In these instances, shipping costs are a significant approximately 1 to 3 percent of the overall costs of companies offering CIF for shipping between destinations in the US or Europe.